Hi,
The European downturn. Valentine's Day Massacre. The Hangover:
We felt the pain
Changed our name
Called people of fame
Who all did the same
And in the end it remained the same
The lands that paid will now be slyn

Sensationalist headlining of "massacre" is contemporary media spin of backwards looking accounting - but there's an element of truth in the meaning of the word: large scale slaughter of humans indiscriminately and cruelly.

What TE fails to show, is the size of the derivates and currency markets compared to historic GDP - in other words, the disconnect between the real economy and money which grew markedly after WWII, in the wake of Bretton Woods Conference agreements which became operative in December 1958. Real returns are deflationary (negative) is many EU economies as a result of austerity and near-zero central bank interest rates, so it should surprise no one that the time lag in measurement shows negative GSP.

The disconnect between "money" and "produced goods" goes much further back than even the 50's; amongst the oldest derivatives is rice futures, which have been traded on the Dojima Rice Exchange since the 18th century.

Unable to understand the math and complexity of largely unregulated financial markets, ordinary folk retreat to a 'laager' mentality, mistakenly arguing for a return to the gold standard (as if that would change anything) instead of insisting that QE be redirected from profiting bankers, to investment in the real economy in order to increase productive output (GDP) and raise it closer to the nominal calue of financial economies.

Dangerous calls for 'austerity' lead to political pressure by the Republicans and others for further economic slaughter of the innocents - ironically, most of your readers who call for it!

Lay man investors (including pension fund members) fail to appreciate that the simple mathematical concept of compound interest in itself is a money creation tool - failure to grasp that would reduce the US and European economies to the rubble of Islamic countries destroyed by Shariah law's anachronistic prohibition against interest.

QE is simply controlled money creation as opposed to unregulated creation by bankers leveraging derivative instruments for their own ends - it is key to escaping further "massacre", but only if accompanied by regulating, capping and controlling financial market on one hand and redirecting QE bonds bought by central bankers, to pay off deficits and national debt on the other.

We need to understand that the Fed and other central bankers do not "owe" anything for the bonds they bought with money they printed - instinctively, we realise there are no free lunches, and that ultimately taxpayers will bear the cost.

We should be pressuring our politicians to force central bankers to "gift" their bloated balance sheets in offset deals to government treasury, to square off the budget deficits which they exacerbate so that we do not end up paying twice for bankers to get off the hook of the financial crists they precipitated in 2007/8.

Core EU, US and Japanese industries are already rebounding with the aid of QE - but the results will be far better, at less cost to the man in the street, if we clip the wings of bankers to gamble with our money, and force their central banking colleagues to give back the bonds they bought to treasury to pay off the indirect 'value gap' debt created.

Divergence returned to the Euro region because it never left.
For Germany to report an economic downturn even as it achieves record trade surplus means that German domestic demand is not doing its job as the "locomotive of Europe".

One other reason might be the fact that German investment is redirected to other countries with more growth opportunities. After all from what I have read during the past year German government spending has increased, wages have increased and unemployment has decreased. This leaves only investment as the variable which might have decreased in Germany (which is taken into account when computing GDP). The problem is: Is most of this German investment directed to other European countries or to Brazil, US, China and India? If someone finds statistics about German investments by country (or region) it would be helpful.

The €-era is soon over! We all know this, we all have known it for quite a while. The banks were saved by borrowing money from ECB, and lending the money to indebted states. Tranquility was bought by the taxpayers money. However, as the real economy implodes the nation states go bust as well, and with them ECB. End of story.

These are minor and almost negligible issues that could easily be solved with a little more optimism and confidence, right?
More hype and lies have been most useful in such cases, and they are still welcome, as usual.
There's nothing that more BS can't fix, even if it's a currency that warps the playing field against some teams nicknamed the 'periphery'.

As for France, the solution is easy: Since socialism in its etatist French version doesn't work as well as expected, the Republic should simply own everything. Welcome to the People's Republic of France.

This is absolutely pathetic. What the Eurozone needs is flexible exchange rates; that or a central government taxing authority. On top of this, most of these countries are stuck in both a banking crisis and a sovereign debt crisis. To solve their debt issues, they've imposed austerity and higher taxes on their citizens to pay for the bad debt in the banking system. How this makes sense? I have no idea.

Your solution would work but then who is going to take europe seriously anymore? What country would want to do business with these countries in europe anymore? mabye malwi or equitorial guinea? the fact is your solution would make these countries credit ratings worse than a junk bond. And your solution would actually help the far east of china, and india. As the the US, Russia and South America would take their business their and their business interests. You would not only make europe on par with africa but your solution would also serve as a quicker catalyast to the inevitable far east domination of global business.

Who takes Europe seriously now? Last time I checked, Portugal, Spain, Italy, Ireland, and Greece are all stuck in a sovereign debt crisis with massive unemployment. France is next in line, while the entire Eurozone is having negative growth. You've got a massive financial sector that doesn't produce anything that's being propped up by regular, hard-working people who can't even find enough jobs and can barely put food on their table. If you let this go on long enough, war will be the endgame and no one benefits from that. There is no other solution, period.

That would be a great idea if I had any school exams to prepare for. I've only got 4 hours of class to finish my degree this semester, to which my professor's canceled the past 4 weeks of my only class due to illness. When I'm not working, I have nothing better to do than to "troll the grown ups' forums".

Onto something far more relevant to the topic at hand, isn't the fact that Europe doesn't have a centralized taxing authority the problem. You don't have any labor mobility or any way for transfer payments between the countries and exchange rates can't adjust, so the only way to adjust trade imbalances is through nominal wage deflation. You also have these same countries that are highly indebted where debt/income ratios are unreasonably high and weighing on growth. How can debt/income ratios adjust if there's no growth and nominal wage deflation? The only way to do so is to restructure debts across the board.

So, could you please explain how different currencies among states would help a country like the United States?
While it is true that independent currencies solve some problems by simply eliminating the weaklings from the market, they do add handicap to market fluidity. Please note that the hyperinflating poorly managed economies not only don't drag the prosperous ones down, but they also cannot be viewed as a potential market. They simply vanish from the economic equation of the region.
As the example of the US of A has shown, a common currency among many states of disparate wealth can work well for the whole. There is no reason to discount the Euro simply, because the zone contains poorly managed states.
There is ample evidence, however that the Euro Zone is poorly managed. The answer to poor management isn't necessarily a step back to a more chaotic setup.
To draw an extreme comparison: While Anarchy can be a stable state without the burden of evil taxation, it does not allow for the kind of prosperity that has become standard in more organized societies. I believe it is the same with currencies.

You're missing the point I'm trying to make. The reason that the United States doesn't need different currencies is because there is plenty of labor mobility, one common culture, things like that. I've lived in 5 different states in the US; I only really know one language and I've been able to get by just fine. In the US, richer states like New York transfer resources to poorer states like Alabama without anyone really getting pissed off. It's also easy for someone in New York to move to California and start working there; and no one in California complains that New Yorkers are taking their jobs.

In Europe, that would mean that Germans would have to pay taxes that go to Greeks. It would mean that someone who doesn't have a job in Greece would be able to go to Germany easily. I was looking at something where the labor mobility over the entire US is more than the labor mobility in Italy itself(I don't remember if it was Italy exactly, but some country in Europe--I believe it was most countries in Europe). The culture across the entire US is very similar; while each European country basically speaks its own language and has its own culture. It's not that the Eurozone contains poorly managed states(states like California and Nevada was poorly managed as well); it's that there doesn't exist a mechanism where resources can be transferred. Since such a transfer mechanism doesn't exist, the labor mobility doesn't exist, and the cultures/languages are different, each European country needs a different currency.

While labour mobility certainly is harder in Europe than in the US, it cannot be said that it is not significant. For example, even in my current home of Dubai it is known that the second language spoken in the UK is Polish. So much for that myth with respect to low paying jobs. My Portuguese employer has projects in France, Switzerland, UK, Spain and Germany to name just a few. These are Portuguese fellows pushing out the locals in highly specialized strategic projects.
A common currency is keeping us sane and liquid. We couldn't shave margins in a market of volatile exchange rates. Separate currencies make labour mobility more difficult, not less.

And to top it off, I have met in Europe Europeans of such mixed heritage that they could only be called Europeans, because hey do not belong to any single EU nation.

I just don't think it's possible to have fixed exchange rates in today's world. If Europe develops a centralized taxing authority, I think it'll be possible; however, I don't think it's likely. If you look at the balance of trade across every country in Europe, what you'll see is that it's progressively worsened over every single year the Euro has been in place. I don't know how they can adjust that without flexible exchange rates or a centralized government.

I think maybe some solution like the Euro being some sort of a Bancor that Keynes envisioned with each country having its own currency in circulation along with a Bancor. Something of that sort may be able to be worked out where the Bancor could be the Euro.

Wouldn't it be better to let the banks fail rather than to keep the bad debt serviceable by higher taxes and austerity. Rather than taking care of a failed financial sector, take care of your citizens.

The debt problem was not a government problem it was a private banking problem it was caused by reckless, unregulated banksters who profited handsomely. It became a government debt problem when leaders, for reasons unknown ( certainly not corruption ) decided to use taxpayers money and government debt to bail out the criminal banksters. Send those banksters to prison and sue them personally to recover the looted funds. That should be step one. Then the politicians who aided and abetted them.

Every quarter recovery gets pushed back another two, every year the deficit targets gets pushed back another one, when are market going to wake up and realize that one sentence dose not change basic fiscal reality.

Always good to see someone lighten up. Here's my riposte. Not as good I'm afraid - bit of a rapier like thrust with a broadsword

Down the Danube, up the Dnieper
Pay off Charon, hire grim reaper.
The sacré EMU is but a dodo.
Like Barberousse, O Général des Eaux
Komm’ wieder von C. les deux Eglises
To save us all from bankers’ sleaze.

Betting on a future recovery amid still-dismal economic data is not unusual for financial markets (and the reverse is also true, of course). If confidence stays on, most investors will dismiss today's GDP data as backward-looking, especially for Germany whose downturn was indeed more severe than expected in Q4 but was also said to be short-lived as China regains steam.
The recession in crisis-hit EMU periphery may be here to stay but everybody is aware of that, no matter what happens in Italy after the impending elections or in Spain as the probe into the ruling party's finances goes on. The IMF's revision of fiscal multipliers got investors ready for even worse figures on GDP in Q4.
A perfect case for profit-taking on these still-shaky countries could have been easily made but the back-up in yields and spreads has been modest indeed. One can argue that the ECB put option is still highly-valued if this complacency stays on.
What really could change the game is France's role. It is still placed somewhere in between the core and the periphery but the prevailing mood seems to be that if normality is restored one day it will revert to a German-like status.
The trouble is that France's government seems to hold sort of a blind acceptance of this reversion principle, bordering on faith, and doesn't feel it should worry about how credible its efforts to cut public expenditure and the deficit.
The sky-high tax rates slapped on the most affluent are likely to bring modest additional revenues (if any at all, once the Constitutional Court's recent rejection cannot be remedied). With such a narrow escape provided by current fiscal policy, France's status is in danger, all the more so if a different Germany emerges from its own elections and that other put option, tied to this historical alliance, is written off.

Good summary. Over the next 15 years, I'm actually more optimistic for Spain, Greece and Italy than I am for France.
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The former all have better structural fiscal balance & current account trends than France (though these have been hard-won), have lower tax burdens, are coming from positions with higher unemployment (return of labour to active work will increase GDP), now have much higher retirement ages than France (workforces will decay less than that of France in the coming decade), and are coming from a lower productivity base (more potential for catch-up growth).
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I fully expect strong growth to return in Spain, Greece and Italy. But that growth will require restructuring of the European financial sector (progress to banking union with a good resolution mechanism really should proceed faster).

It's interesting to note that the intensity of the economic crisis in France seems to be lessening, according to the Orlando Bisegna Index, whereas the index seems to bear out the view that Germany might also have stopped the rot. Indeed, most of the EU countries, with the exception of Spain and the UK, seem to be heading in the right direction of late.

Shaun, why do you say that the workforce will decay less in Spain, Greece and Italy than in France in the coming decade?
Don't the demographic trends indicate that the working-age population in France will increase, whereas in the other countries listed it will decrease?
Or have I missed something subtle about the rate of increase of the retirement age?

It is interesting to compare with the UK performance: According to Eurostat
(http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1&...)
the Euro zone and UK growth rates were
Year 2008 2009 2010 2011 2012 Sum 2008-2012
Euro 0.4 -4.4 2.0 1.4 -0.4 -1.0
UK -1.0 -4.0 1.8 0.9 0.0 -2.3
In other words, the UK recovery after the financial crisis has been worse than the Euro zone.

True. That's because it's mostly a banking/financial crisis (it isn't a "euro" crisis - it is a crisis of accumulated bad debts being stressed by a cyclical deleveraging amidst under capitalization of banks). And the UK, with an oversized financial sector, inevitably suffers more.

It is a fundamental principle of capitalism that businesses that are bankrupt are allowed to go bankrupt. Wasting finite money on propping up uncompetative businesses removes money that could be used to support competative businesses. Thus money spent on bailing out banks which are meant to go bankrupt is money wasted, as it could be used to support other businesses, such as those in manufacturing.

The UK financial sector is bankrupt, and capitalism dictates is should go bankrupt. Allowing those banks to go bust will hurt in the short term, but in the long term other new competative banks would come along and fill the gaps. Thats how capitalism works, and this is also why recessions are good for long term growth: they wipe out those businesses which are uncompetative and allow other businesses to become more competative via restructuring.

But Westminster would never allow this - all those dodgy corrupt bankers would instantly get wiped out - and pockets of politicians whom they fill would start to run empty.

Yes. Propping up banks instead of nationalizing them and to reduce the bad debt over time is something that the politicians foist upon the public. These banks are not to be trusted to finance real growth in the global economy.

Yes. Economies need financial intermediaries. Financial intermediaries shall exist to serve the various growth phases of economies. Propping up defunct banks is evidence that the banksters have taken over. This is the most serious impediment to growth.

Competative businesses dont need support, they need "loans" and "grants" for research, development and growth. If money is wasted on uncompetative businesses, there will be no money to support the competative ones - particularly for small and medium size businesses.

Olli Rehn, the commissioner in charge of economic and monetary affairs, said that this would show growth returning “only gradually in the second half of 2013”.
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Rah! Rah! Rah!
Go TEAM, GO!
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Now we know why soccer doesn't have cheerleaders on the sidelines.
The politicians don't want Europeans to understand that concept.
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NPWFTL
Regards

This newspaper had a recent article on how Sweden had to curb it's excesses for fear of running into drift sand. Communism, an extreme form of socialism, is the ultimate "helping hand", and it took the talented East Germans to the Trabant for automotive needs. People were so happy about "no-one being left behind", that a complete external travel ban had to be imposed in Russia and others! This excessive "helping" imploded on itself.

Funny, I thought it was the complete mismanagement of a centralized government and wholesale corruption. Of course it is also worth noting that the Russians won every stage of the space race except going to the moon, which turned out to be an expensive boondogle

From what could be seen in the USSR what was practiced when any group gained power was not Communism, Socialism or Marxism but party political oligarchy.
The communist party runs the state:
The implication was any achievements and mismanagement is also due to the communist party.
Therefore any mismanagement was buried, sometimes literally. Not solved or rectified, just buried. The accumulation of bad unsolved decisions eventually killed the USSR.

This is true both in East and West where we are now facing our own crisis with politicals running everything, talented graduates being put to waste not fixing the state, while fraud runs the system of the debt economy.

The problem with communism turned out to be that the invisible hand of the market functions, even if you abolish it with lack of property and egalitarianism. When the invisible hand of the market is not allowed to exist in plain daylight, it shifts to underground means.
As a result barter, bribery and outright theft of public property flourishes in all communist countries.
This does not mean that capitalism is a universal good. It needs checks and balances and transparency, which are now both being sacrificed for centralized planning and bank sector security. What is going on now in Europe and the US cannot be called capitalism any more than it can be called communism. There is no justice, no transparency and no equality.